Labor Force Participation Rate is a special economic term that means a measure of the active workforce. Its formula is very simple because it includes the total number of all employed people or people who actively look for work and this sum has to be divided by the total population in the working-age.
Basic information about Labor Force Participation Rate
The aforementioned rate is a very important tool that helps with analyzing unemployment data. It allows for measuring the number of people who are employed or interested in finding a job. The Labor Force Participation Rate omits all the people in working age who are not searching for a job or who are not able to perform any jobs for health or other reasons. This omitted group includes full-time students, homemakers, prisoners, retirees, and disabled people.
In other words, the LFPR (Labor Force Participation Rate) shows the percentage of all working-age people who are actively looking for work or who are employed. This tool used with the number of unemployment people can show the current state of the economy.
We also need to remember that the Labor Force Participation Rate does not include people who are not looking for a job. For some reason (health, recession, etc.), many people become discouraged and they give up looking for work.
According to the aforementioned information, the LFPR is a more reliable figure than the unemployment rate.
How to calculate the current Labor Force Participation Rate?
It is important to have some data to calculate the LFPR. First of all, we have to know the total number of people included in the labor force. This number includes economically active people (employed or searching for employment). For example, United States citizens over the age of 16 who are looking for work are members of the labor force. People who serve in military services, people under the age of 16, prisoners and disabled people are not included in this group. The labor force also includes self-employed people, because their work generates profits.
The second important figure is the total population of people who are eligible to become parts of the labor force. In other words, it includes all the economically active and inactive people who can join the labor force, because they meet all the required criteria. People economically inactive are not employed or self-employed and they are not looking for a job. In other words, this population includes people who can be in the labor force but decided not to join it.
The calculation formula for the Labor Force Participation Rate is very simple if we have the current and reliable data mentioned above. The formula is:
LFPR = LF / P
LFPR means the Labor Force Participation Rate.
LF means the labor force
P means the total eligible population including economically active and inactive people.
The final result of this formula gives us valuable information about employment and the overall state of the economy in a country. It is good to calculate it regularly and compare it with results from previous months of years, so we can see if the economy and employment go the right or wrong way.